Pacific Brands (PBG)

At its annual general meeting,
Pacific Brands
confirmed that retailing conditions had been difficult during the September quarter and that sales and earnings had been below expectations, with soft consumer spending habits, competition from private labels and high cotton prices contributing to the poor performance.

Shares in the company hit 12-month lows following meeting, at which management provided guidance for underlying sales, EBIT and net profit to drop further this year.

Deutsche Bank has downgraded forecasts for the Pacific Brands following the warnings and now expects earnings before interest and tax to drop by about 20 per cent over the full year to June 2012.

The broker says that while the valuation is low and the company is sporting attractive free cash flow yields, the risk/reward balance is fairly even at this point. Deutsche has reduced its price target to 60¢ from 70¢ but reiterated its “hold" rating.